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Income Tax Appellate Tribunal, ‘D’BENCH,
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals),XX, Kolkata dated 06-03-2014 for the assessment year 2007-08.
The only effective issue is to be decided in this appeal as to whether the CIT-A justified in confirming the disallowance made @ 20% of cash purchases in the facts and circumstances of the case.
The brief facts of the case are that the assessee is an individual dealing in the business of Bicycle spare parts under the name and style of M/s. Calcutta Cycle Co. The assessee filed his return of income for the A.Y under consideration on 02- 11-2007 for a total income of Rs.1,52,500/-. Under scrutiny notices u/s. 143(2) & 142(1) of the Act were issued, against which the assessee filed details as per requisitions of the AO. The notices u/s. 133(6) of the Act were issued to different parties. On such compliances and information so received, the AO found that the assessee has paid the payments of Rs.8,50,788/- to parties exceeding Rs.20,000/- in cash on different dates. Accordingly, the AO disallowed Rs. 1,70,158/- @ 20% of the amounts of Rs.8,50,788/- paid to M/s. M.K Cycle (P) Ltd and M/s. Calcutta Traders and M/s. Balaji Enterprises for such cash payments and added the same to the total income of the assessee.
In challenge, before the CIT-A the assessee contended that said purchases were made in earlier and subsequent years in order to get at cheaper rate than the credit purchase of same goods and demonstrated the method of cheaper rates that price of the cycle gear would be Rs.91/- if paid in cash and differs between Rs.104/- to Rs.106/- if paid in cheque. Likewise, he submitted the following details/chart as filed before the CIT-A in support of assessee’s contention:- 5.1 No. Name Amount PAN (Rs.) 1 M.K Cucle (P) Ltd 4,90,721/- AADCM6953C 9/12, Lal Bazar Street, Kol-1 2 Calcutta Traders 2,56,464/- AACFC1126H 4, Bentick Street, Kol-1 3 Balaji Enterprises 1,03,603/- AAZPJ6923A 6B, Bentick Street, Kol-1 8,60,788/- Sri Gautam Dutta 2
Thus by cash purchased he served a lot resulting higher profit on which he paid higher tax. With a capital of Rs.76,280/- he has earned net profit of Rs.2,48,948/-. a) He purchased Bi-cycle gear for cash @ Rs.91/- per set whereas he had to pay Rs.104/- to Rs.106/- per set when he paid by cheque. b) He purchased Bi-cycle Frame for cash @ Rs.355/- per piece whereas he had to pay Rs.390/- to Rs.455/- per piece when he had paid by cheque. c) He purchased Rickshaw Frame for cash @ Rs.405/- per piece whereas he had to pay Rs.422/- to Rs.437/- per piece when he paid by cheque. d) He purchased Bi-cycle Handle for cash @ Rs.110/- to Rs.115/- per piece whereas he had to pay Rs.132.50 to Rs.135/- per piece when he had paid by cheque. e) He purchased Bi-cycle fork for cash @ Rs.100/- to Rs.104/- per piece whereas he had to pay Rs.114/- to Rs.116/- per piece when he had paid by cheque. f) He purchased Bi-cycle Fim for cash @ Rs.104/- to Rs.124/- per piece whereas he had to pay Rs.114 to 158/- per piece when he had paid by cheque.”
Thereby the assessee contended that the consideration of such items were paid in cash in order to get the items at cheaper price and earned higher profit. The CIT-A found that the contention of assessee was not acceptable. Thus, he confirmed the addition as made by the AO by observing that the said payments were not covered by any of the exception as given under Rule 6DD of the IT Rules.
Before us the ld.AR submits that the assessee conducted his business transaction in cash in earlier years and also in subsequent years in order to get cheaper rates of items for earning higher profit. The ld. AR also argued when the act of paying consideration in cash itself there being business expediency and no need to be covered by the exception as provided in Rule 6DD of the IT Rules. He also argued when the provision of section 40A(3) is very clear than resorting to rules is not necessary, thereby exception in Rule 6DD is not required to be applicable.
The ld.DR argued that the assessee did not give valid explanation in the support of his contention of payments were made in cash for the purpose of business expediency and such payments were not covered by the exceptions as provided under Rule 6DD. Rule 6DD is sacrosanct and violation of section 40A(3) of the Act and failure to which under exception the disallowance made on this count is justified. He relied on the orders of the AO and the CIT-A.
8 Heard rival submissions and perused the material available on record. We find that the AO sought explanation from assessee regarding the payments exceeding Rs.20,000/- and according to AO that the assessee offered no explanation and admitted the violation of the provision contemplated U/Sec. 40A(3) of the Act, whereas before the CIT-A, we find that the assessee took a plea that it would earn higher profits if the payments were made in cash than the payments otherwise made in cheque and to support its contention formulated an example i.e. that it requires to pay Rs. 71/- in cash for Bicycle gear, whereas, consideration differs between Rs.104/- & Rs. 106/-, if paid in cheque. The ld.AR submits before us, the same practice has been followed in earlier years and subsequent years and argued that the payment in cash is a commercial expediency. In this regard, we may refer to the provision contemplated U/s. 40A(3) of the Act relevant to the year under consideration.
Section - 40A, Income-tax Act, 1961-2007
Expenses or payments not deductible in certain circumstances.
40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".
(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette , in a sum exceeding [twenty] thousand] rupees otherwise than by [an account payee cheque drawn on a bank or account payee bank draft], [twenty per cent of such expenditure shall not be allowed as a deduction]
A bare reading of the above provision suggests that there shall be disallowance of 20% in respect of any expenditure where payment is made exceeding Rs.20,000/- otherwise than by account payee cheque or account payee bank draft. In the present case, the AO found that all the payments amounting to Rs.8,50,788/- were paid in cash exceeding Rs.20,000/-. The assessee did not produce anything in evidence before the AO in supporting of its claim that the impugned amount were paid through account payee cheques or account payee bank draft nor offered any explanation. Before the CIT-A contended the said payments were made in cash in order to get higher profits and vehemently supported his contention that it is a commercial expediency to purchase goods at cheaper price and in our opinion it is not tenable. In view of the same, we reject the arguments advanced by the ld.AR and do not find any merit in the appeal and the order of the AO in disallowing an amount of Rs.1,70,158/- and confirmed by CIT(A) on this issue is justified. Accordingly, the ground raised by the assessee is dismissed.
In the result, the appeal of assessee is dismissed. ORDER PRONOUNCED IN OPEN COURT ON 10-02-2017